Contractors predict growth in construction.

Construction contractors are cautiously optimistic about next year's construction volume and the industry's possible recovery. According to an annual survey of financial managers in the construction industry, more than half (56 percent), predicted growth for next year's contract volume, up from 47 percent who indicated so in 1992.

"Our respondents' measured optimism could foretell an end to the declining volumes that have crippled the construction industry over the past several years," said Joseph J. Quigley, national president of the Construction Financial Management Association (CFMA), which conducted this fifth annual survey. CFMA polled approximately 2,800 financial managers at construction companies across the country and 5,000 managers from the Engineering News Records list of U.S. contractors with annual revenues greater than $1 million. Of the 755 survey participants, 91 percent provided detailed financial information and 66 percent participated in last year's survey.

Of the respondents who predicted contract volume to rise, the majority estimated that the greatest growth next year will be in the Heavy & Highway segment, responsible for rebuilding this country's infrastructure. Next-most strongest growth is predicted for the Industrial & Non-Residential and Single Family & Residential markets.

To meet the challenges of the next century, construction industry leaders are also boosting their use of substance abuse testing and total quality management programs. Over the past five years, the rise in substance abuse testing has been dramatic. According to CFMA's first industry survey in 1989, less than one-quarter (22 percent) of the respondents said that they tested employees for substance abuse. This year, in large part spurred by rising liability exposure, nearly two out of three (57 percent) of the respondents said they had so tested their employees.

In addition, accelerating competition has prompted many contractors to put greater emphasis on quality. This year, more than one-third (35 percent) of those surveyed said that they have implemented a quality program, up from 23 percent last year.

This year's survey provides data for analyzing trends from 1989 to 1993. Among other highlights:

Easier Access to Credit: Judging from the survey results, credit is getting easier to come by. in fact, nearly 60 percent of the respondents said that access to credit had improved in the past 12 months, and almost half (48 percent) reported that their working capital line of available credit had increased.

Sagging Profitability: Despite current optimism about the future, return on equity, net income and gross margins have all decreased since 1990. While slimmer profits are typically associated with a recession, increasing competition has also contributed to lower margins. "What we're seeing in the industry is that as the same number of contractors are chasing fewer job opportunities, profit margins are getting squeezed," said Quigley.

Industry challenges: Although the survey was conducted prior to the announcement of President Clinton's healthcare proposal, insurance continues to be the most significant challenge facing contractors, mentioned by 82 percent of the respondents. Next most-cited concerns included sources for future work (46 percent) and litigation (35 percent), similar to last year's findings.

More Government Work: Since 1989, the percentage of total business performed for public sector clients (federal, state and local governments) has increased significantly across all categories except Heavy & Highway, which remained constant. Public sector work rose from 26 percent of total business in 1989 to 37 percent in 1993.

The Construction Financial Management Association is the only non-profit organization dedicated to serving the financial-professional in the construction industry. Established in 1981, CFMA's general members represent all types of contractors--including general and sub contractors-as well as developers, construction managers, architects, engineers and principals. Currently, CFMA has approximately 5,300 members and close to 70 chapters across the United States.

CFMA's "1993 Construction Industry Annual Financial Survey" was conducted by CFMA's Accounting and Financial Reporting Committee, with results and analysis compiled by KPMG Peat Marwick. Copies of the survey can be ordered through CFMA Headquarters, 707 State Road, Suite 223, Princeton, New Jersey 08540 or by calling 609-683-5000.